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Tuesday, August 30, 2011

Pimco's Gross regrets "mistake" on US debt call

All of MMT had this right because MMT allows you to understand that the central bank sets rates and that the funds used to buy government securities comes from government spending itself.

It's bad enough that Bill Gross got it wrong, but he embarrassed himself by Tweeting, "Who will buy them now?" when the Fed ended QE2 on June 30. For a currency issuing nation there is never lack of funds or a lack of buyers for public debt issued in its own currency, by definition.

Gross continues to embarrass himself in his explanation of why he shorted the bonds:

“Do I wish I had more Treasurys? Yeah, that’s pretty obvious,” Mr Gross told the Financial Times last week, adding: “I get that it was my/our mistake in thinking that the US economy can chug along at 2 percent real growth rates. It doesn’t look like it can.”

5 comments:

The quasi-monetarists and Keynesians and new Keynesians also got this right. I do give Gross credit though for admitting his mistake. How many of the deficit or inflation terrorists have done this? Many seem to continue with their often seemingly ad hoc, failed models. The hawks on the Fed are a good example.

I'll give him a half a star for that. Unfortunately he still shows no interest in correcting his misunderstanding of the bond market or the monetary system. He blames his "error" on a bad economic forecast even though he fretted publicly back in June that the end of QE2 would take the only buyer out of the market.

Mike,It also seems he is missing the parallels with Japan that has much higher "debt" to GDP ratio and lower rates on 10yr and 30yr govt securities... seems like a "no brainer" in our current policy environment....

Gross, who was named Morningstar's fixed-income manager in the decade ending 2009, has seen his $246 billion Pimco Total Return Fund [PTTAX 11.01 0.01 (+0.09%) ] eke out a mere 3 percent gain this year, almost half that of the Barclay U.S. Aggregate Bond Index, the fixed-income benchmark.

Pimco Total Return's performance this year puts it in the 88th percentile versus its peers, but the fund beats all but 5 percent of its peers over the past 15 years.

Gross made no bones about his strategy shift this year: He dumped U.S. debt holdings, principally Treasury and agency bonds, early in the year, saying he expected faster economic growth would contribute to inflation . The Federal Reserve also had been expecting a pickup in economic growth in the second half of the year.

That didn't happen. "The portfolio's 1.1% return from July 1 through Aug. 18 has been subpar, and has dragged its year-to-date return to the group's bottom quartile," reports fund-ranking firm Morningstar.